nep-ias New Economics Papers
on Insurance Economics
Issue of 2021‒02‒15
ten papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Risk-based selection in unemployment insurance: evidence and Implications By Landais, Camille; Nekoei, Arash; Nilsson, Peter; Seim, David; Spinnewijn, Johannes
  2. Elderly Care and Multiple Monies By Hajime Tomura
  3. How does COVID-19 change insurance and vaccine demand? Evidence from short-panel data in Japan By Eiji Yamamura; Yoshiro Tsutsui
  4. Does the Rise of China Lead to the Fall of European Welfare States? By Barth, Erling; Finseraas, Henning; Kjelsrud, Anders; Moene, Karl Ove
  5. Does Free Healthcare Affect Children's Healthcare Use and Outcomes? By Cheolmin Kang; Akira Kawamura; Haruko Noguchi
  6. Fair-value Analytical Valuation of Reset Executive Stock Options Consistent with IFRS9 Requirements By Otto Konstandatos
  7. A Contextualist Decision Theory By Saleh Afroogh
  8. Estimating value at risk and conditional tail expectation for extreme and aggregate risks By Suman Thapa; Yiqiang Q. Zhao
  9. Influences of service characteristics and older people’s attributes on outcomes from direct payments By Davey, Vanessa
  10. Mobility and Sales Activity During the Corona Crisis: Daily Indicators for Switzerland By Florian Eckert; Heiner Mikosch

  1. By: Landais, Camille; Nekoei, Arash; Nilsson, Peter; Seim, David; Spinnewijn, Johannes
    Abstract: This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage. Exploiting variation in risk and prices, we show how 25-30% of this correlation is driven by risk-based selection, with the remainder driven by moral hazard. Due to the moral hazard and despite the adverse selection we find that mandating the supplemental coverage to individuals with low willingness-to-pay would be sub-optimal. We show under which conditions a design leaving choice to workers would dominate a UI system with a single mandate. In this design, using a subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate.
    Keywords: Adverse Selection; Unemployment Insurance; Mandate; Subsidy
    JEL: R14 J01
    Date: 2020
  2. By: Hajime Tomura (Faculty of Political Science and Economics, Waseda University)
    Abstract: This paper presents an overlapping generations model in which old generations require specific services from young generations due to idiosyncratic shocks. An example of such services is elderly care. The model shows that a two-money system in which fiat money for such services is separated from that for the other types of goods and services can replicate the resource allocation in a one-money system with a fair insurance. For this result, it is necessary to prohibit old generations from exchanging different types of fiat monies in the two-money system. The model implies that the introduction of fiat money for elderly care reduces the real value of government bonds outstanding in the country.
    Date: 2019–06
  3. By: Eiji Yamamura; Yoshiro Tsutsui
    Abstract: In this study, we explored how the coronavirus disease (COVID-19) affected the demand for insurance and vaccines in Japan from mid-March to mid-April 2020. Through independent internet surveys, respondents were asked hypothetical questions concerning the demand for insurance and vaccines for protection against COVID-19. Using the collected short-panel data, after controlling for individual characteristics using the fixed effects model, the key findings, within the context of the pandemic, were as follows: (1) Contrary to extant studies, the demand for insurance by females was smaller than that by their male counterparts; (2) The gap in demand for insurance between genders increased as the pandemic prevailed; (3) The demand for a vaccine by females was higher than that for males; and (4) As COVID-19 spread throughout Japan, demand for insurance decreased, whereas the demand for a vaccine increased.
    Date: 2021–01
  4. By: Barth, Erling (Institute for Social Research, Oslo); Finseraas, Henning (Norwegian University of Science and Technology (NTNU)); Kjelsrud, Anders (University of Oslo); Moene, Karl Ove (University of Oslo)
    Abstract: Have recent trends in globalization changed the positive link between trade openness and social insurance? The consensus view - that voters want better social insurance against income loss the more open the economy - is seemingly contested by the rise of populism and the China shock. We present a theoretical framework of risk and income effects of globalization that captures the conventional view, but also shows when it will be modified: When the income effect is negative, the political support for social insurance can decline in spite of the risk effect. We construct an empirical measure of welfare state support across European regions and leverage the rapid integration of China into the world economy to show that higher import competition reduces the support for social insurance. Consistent with our framework, we decompose the overall effect of the shock into a (weak) positive risk effect and a (strong) negative income effect.
    Keywords: regional labor demand, welfare state support, social insurance, China shock, trade exposure
    JEL: J21 J23 H55 F16 F6
    Date: 2021–01
  5. By: Cheolmin Kang (Faculty of Political Science and Economics, Waseda University); Akira Kawamura (Faculty of Political Science and Economics, Waseda University); Haruko Noguchi (Faculty of Political Science and Economics, Waseda University)
    Abstract: We investigate the extent to which the subsidy for children's healthcare in Japan affects children's healthcare use and outcomes using multiple nationally representative data sources. The subsidy, which made children's healthcare services essentially free for patients, was introduced and expanded to preschoolage children in the 1990s. We use a difference-in-differences framework by exploiting unique variations in subsidy status, as the introduction timing and age of eligibility differ across municipalities. We find that the subsidy significantly increased the use of outpatient care measured by visit intervals, the number of repeat patients, and monthly spending. However, we find little evidence on the overall use of inpatient care, while we observe a significant increase in the length of stay only for infants under the age of one who undergo surgery. Further, we find that the subsidy significantly improves children's subjective health (i.e., the probability of having symptoms, such as fever, cough, and nasal discharge, as measured by parents). However, we find little evidence regarding its effect on overall objective health (i.e., cured outcomes, as evaluated by a physician at discharge, and the mortality rate), while we observe significant improvements in these objective health outcomes only for infants under the age of one. The subsidy may significantly contributes to reducing the mortality rate for infants under the age of one by 0.79 per 1,000 individuals. In summary, this study indicates that free healthcare for children improves their access to healthcare as well as health outcomes, thus prioritizing this investment as part of national healthcare plans.
    Keywords: children's healthcare subsidy; child-care cost-sharing; children's healthcare utilization; subjective symptoms; child mortality; Japan
    JEL: I18 I11 I12
    Date: 2019–08
  6. By: Otto Konstandatos (Finance Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: Executive stock options (ESOs) are widely used to reward employees and represent major items of corporate liability. The International Accounting Standards Board IFRS9 financial reporting standard which came into full effect on 1-Jan 2018, along with its Australian implementation AASB9, requires public corporations to report their fair-value cost in financial statements. Reset ESOs are typically issued to re-incentivise employees by allowing the option to be cancelled and re-issued with a lower exercise price or later maturity. We produce a novel analytical reset ESO valuation consistent with the IFRS9 financial reporting standard incorporating the simultaneous resetting of vesting period, exercise window, reset level and maturity. We allow for voluntary and involuntary exercise. Our analytical result is expressed solely in terms of standardised European binary power option instruments. Using the multi-state mortality model of Hariyanto (2014) we estimate longitudinal disability and death transition probabilities from cross-sectional data. We determine survival functions for pre-vesting forfeiture or post-vesting involuntary exercise for use with weighted portfolios of our formulae to illustrate the effect of survival on the fair-value. We examine the IFRS9 method of valuation using expected time to option exercise and demonstrate a consistent over-estimation of fair-value of up to 27% for senior executives.
    Keywords: Executive compensation; Exotic options; Resetting; Non-life insurance liabilities; IFRS9
    JEL: M40 G30 G32 J33
    Date: 2020–12–01
  7. By: Saleh Afroogh
    Abstract: Decision theorists propose a normative theory of rational choice. Traditionally, they assume that they should provide some constant and invariant principles as criteria for rational decisions, and indirectly, for agents. They seek a decision theory that invaribably works for all agents all the time. They believe that a rational agent should follow a certain principle, perhaps the principle of maximizing expected utility everywhere, all the time. As a result of the given context, these principles are considered, in this sense, context-independent. Furthermore, decision theorists usually assume that the relevant agents at work are ideal agents, and they believe that non-ideal agents should follow them so that their decisions qualify as rational. These principles are universal rules. I will refer to this context-independent and universal approach in traditional decision theory as Invariantism. This approach is, implicitly or explicitly, adopted by theories which are proposed on the basis of these two assumptions.
    Date: 2021–01
  8. By: Suman Thapa; Yiqiang Q. Zhao
    Abstract: In this paper, we investigate risk measures such as value at risk (VaR) and the conditional tail expectation (CTE) of the extreme (maximum and minimum) and the aggregate (total) of two dependent risks. In finance, insurance and the other fields, when people invest their money in two or more dependent or independent markets, it is very important to know the extreme and total risk before the investment. To find these risk measures for dependent cases is quite challenging, which has not been reported in the literature to the best of our knowledge. We use the FGM copula for modelling the dependence as it is relatively simple for computational purposes and has empirical successes. The marginal of the risks are considered as exponential and pareto, separately, for the case of extreme risk and as exponential for the case of the total risk. The effect of the degree of dependency on the VaR and CTE of the extreme and total risks is analyzed. We also make comparisons for the dependent and independent risks. Moreover, we propose a new risk measure called median of tail (MoT) and investigate MoT for the extreme and aggregate dependent risks.
    Date: 2021–01
  9. By: Davey, Vanessa
    Abstract: Background: Direct payments (DPs) are cash-payments that eligible individuals can receive to purchase care services by themselves. DPs are central to current social care policy in England, but their advantages remain controversial. This controversy is partly due to their lack of historical visibility: DPs were deployed in stages, bundled with other policy instruments (first individual budgets, then personal budgets), and amidst increasing budgetary constraints. As a result, little unequivocal evidence is available about the effectiveness of DPs as an instrument for older people’s care. This study aims to partially fill that gap using data obtained during an early evaluation of DP’s that took place between 2005 and 07. Methods: Semi-structured 81 face-to-face interviews with older people (and their proxies) using DPs are analyzed. DPs contribution to outcomes was measured using a standardized utility scale. Data on individual characteristics (dependency, informal support) and received services (types and amount of services) was also gathered. Multiple regression analyses were performed between measured outcome gains and individual and service characteristics. A Poisson log-functional form was selected to account for the low mean and positive skew of outcome gains. Results: Levels of met need compared very favorably to average social care outcomes in the domains of social participation, control over daily living and safety, and user satisfaction was high. Benefit from DPs was particularly affected by the role and function of unpaid care and availability of recruitment support. The freedom to combine funded care packages with self-funded care enhanced the positive impact of the former. The ability to purchase care that deviated from standardized care inputs improved service benefits. Large discrepancies between total care input and that supported through DPs negatively affected outcomes. Conclusions: The results offer clarity regarding the benefit derived from receiving DPs. They also clarify contested aspects of the policy such as the influence of unpaid care, types of care received, funding levels and the role of wider support arrangements. Tangible benefits may results from direct payments but those benefits are highly dependent on policy implementation practices. Implementation of DPs should pay special attention to the balance between DP funded care and unpaid care.
    Keywords: consumer-directed care; Direct payments; older people; personal budgets; social care outcomes
    JEL: E6
    Date: 2021–01–02
  10. By: Florian Eckert (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Heiner Mikosch (KOF Swiss Economic Institute, ETH Zurich, Switzerland)
    Abstract: This paper documents daily compound indicators on physical mobility and sales activity in Switzerland during the Corona crisis. We report several insights from these indicators: The Swiss population substantially reduced its activities already before the shops closed and before the authorities introduced containment policies in mid-March 2020. Activity started to gradually recover from the beginning of April onwards, again substantially before the rst phase of the shutdown easing started at the end of April. Low physical mobility during the second half of March and during April likely contributed to the quick fall in new COVID-19 infections since mid-March. The sharp drop in economic activity in consumer-related services during March and April and the gradual recovery in these sectors since May correlates strongly with the reduction and subsequent gradual resurgence of mobility. In addition, while activity within Switzerland was back to normal levels by late June, activity of Swiss residents outside of Switzerland was still below normal.
    Keywords: Corona crisis, mobility, sales activity, daily indicators
    JEL: C38 D12 E32 H12 I12
    Date: 2020–08

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